We discussed the duty to inform the client, fees charged to the client, conflicts of interest, and the duty to preserve client confidences, aiding and abetting the unauthorized practice of law and the duty of competence/duty to supervise in Parts 1 through 3. We will address fee-splitting and malpractice insurance in Part 4.
Fee-Splitting/Financial Arrangement
Does hiring freelance lawyers through a platform violate fee-splitting rules?
Attorneys may not share legal fees with non-lawyers under California Rule 5.4, which states: “A lawyer or law firm shall not share legal fees directly or indirectly with a nonlawyer or with an organization that is not authorized to practice law.” Ethical opinions all come to the same conclusion that fee-splitting rules are inapplicable when a company or freelance platform contracts freelance lawyers to law firms because the fee paid to the company is not considered a “client fee.”
LACBA Opinion 518 finds that the law firm’s payment to the company is simply the purchase of a service: “The work being performed by Company is indistinguishable from other types of services that an attorney might purchase, such as hourly paralegal assistance, research clerk assistance, computer research, graphics illustrations, or other services.” Similarly, and even if the company is owned by non-lawyers, there is no “partnership” with the company pursuant to Rule 5.4 since the law firm has “merely purchased services at a specified rate,” and Rule 5.4 is similarly inapplicable because the law firm has “has contracted for services, at an hourly rate, from Company.” See LACBA Opinion 518. The same reasoning applies when a company contracts with an in-house department or corporate legal department.
Following LACBA Opinion 518, when a company contracts with a law firm for services performed by an independent contractor freelance lawyer, is paid directly by the law firm, and then pays the freelance lawyer, there is no violation of any ethical rules regarding fee-splitting. See also, ABA Opinion No. 88-356, which states that even if the “agency” is paid one amount that is shared with the contract attorney, the agency will not be guilty of fee-splitting because the money is not a “legal fee” paid by the client. See also, COPRAC Opinion 1992-126 (finding that an arrangement for a group of attorneys to form an employment agency which contracts out attorneys to law offices on a temporary basis and charges an hourly rate for attorney services to be paid directly to the agency with a service surcharge paid to the agency is ethically permissible, assuming the agency never deals with the law firm’s clients directly, and assuming the freelance attorney is an independent contractor, rather than an employee of the company.)
In sum, fee-splitting rules are inapplicable when a freelance attorney platform connects law firms to freelance lawyers and the platform pays the freelance lawyers because that the money the law firm pays to the platform is not considered a “client fee”. Rather, the work performed by the platform is viewed as a cost similar to the work performed by a paralegal company or graphic design company, and no actual “client fee” is involved. If, however, the arrangement involves freelance lawyers working directly for clients—as opposed to other lawyers—fee-splitting rules should be reviewed carefully.
Malpractice Insurance
Do freelance lawyers need to obtain their own malpractice insurance?
There is no ethical rule requiring any attorney in California to carry malpractice insurance, whether the lawyer directly represents clients or works as a freelance lawyer for other law firms. Attorneys practicing law in California are not required to carry malpractice insurance, but pursuant to Rule 1.4.2, attorneys who do not carry malpractice insurance must inform their clients in writing if the representation is expected to exceed four hours.
A law firm has the ultimate responsibility to their client, and most law firms serving as counsel of record carry malpractice insurance to protect against risks of a malpractice lawsuit. Insurance policies all have different coverage options for associates, freelance lawyers and others. Some insurance companies allow a law firm to add a specific freelance attorney to policies without additional premiums, while other policies automatically cover freelance attorney work.
If a freelance lawyer is ghostwriting for a law firm, and working on behalf of that law firm and not on their own behalf, many freelance lawyers are comfortable working under the law firm’s policy and choose not to obtain their own policy. Some freelance lawyers choose to carry their own policy out of an abundance of caution, and each freelance lawyer should weigh the costs and benefits of obtaining a malpractice policy.
Regardless of whether a freelance attorney carries malpractice insurance, law firms are ultimately responsible for the work product, and must review a freelance attorney’s work product before submitting it to the client or to a court. See LACBA Opinion 518 (“… in performing services for the client, the attorney must remain ultimately responsible for any work product on behalf of the client and cannot delegate to Company any authority over legal strategy, questions of judgment, or the final content of any product delivered to the client or filed with the court,”). It is not ethically permissible to contract with a client to limit a law firm’s potential malpractice liability by placing all liability on the freelance attorney assisting with a project. See Rule 1.8.8 (“A lawyer shall not contract with a client prospectively limiting the lawyer’s liability to the client for the lawyer’s professional malpractice,”).
Pursuant to Rule 1.4.2, if a law firm carries malpractice insurance and hires a freelance attorney who does not carry malpractice insurance, the law firm does not necessarily have to notify their client. If the freelance attorney’s work does not constitute a “significant development,” and disclosure to the client is not required, then it follows that disclosure of the lack of malpractice insurance is also probably not required. If a law firm knows their own malpractice policy does not cover its freelance lawyer, and their freelance lawyer’s work constitute a “significant development,” out of an abundance of caution, the law firm may choose to notify the client that the freelance lawyer does not carry their own policy.
Erin Giglia and Laurie Rowen are co-owners and founders of Montage Legal Group.
